<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Interest and fee income................................. $ 89,052 $ 80,677 $ 71,873 $ 64,820 $ 58,326
Insurance commissions and other income................. 16,224 11,085 8,754 7,863 9,608
---------- --------- --------- --------- ---------
Total revenues....................................... 105,276 91,762 80,627 72,683 67,934
---------- --------- --------- --------- ---------
Provision for loan losses............................... 15,697 11,707 9,609 9,480 7,255
Legal expense (1)....................................... 183 5,845 441 645 477
Other general and administrative expenses............... 61,652 57,788 53,029 46,201 40,546
Interest expense........................................ 6,015 5,534 5,541 4,322 3,498
---------- --------- --------- --------- ---------
Total expenses....................................... 83,547 80,874 68,620 60,648 51,776
---------- --------- --------- --------- ---------
Income before income taxes.............................. 21,729 10,888 12,007 12,035 16,158
Income taxes............................................ 7,560 3,568 3,909 3,952 5,602
---------- --------- --------- --------- ---------
Net income (1).......................................... $ 14,169 $ 7,320 $ 8,098 $ 8,083 $ 10,556
========== ========= ========= ========= =========
Net income per common share (diluted) (1)............... $ .74 $ .38 $ .42 $ .41 $ .49
========== ========= ========= ========= =========
Diluted weighted average common
equivalent shares.................................... 19,155 19,213 19,172 19,833 21,653
========== ========= ========= ========= =========
Balance Sheet Data (end of period):
Loans receivable........................................ $ 135,660 $ 117,339 $ 103,385 $ 89,539 $ 79,624
Allowance for loan losses............................... (10,008) (8,769) (8,444) (6,283) (5,007)
--------- -------- --------- -------- ---------
Loans receivable, net............................ 125,652 108,570 94,941 83,256 74,617
Total assets............................................ 153,473 133,470 118,382 104,486 90,572
Total debt.............................................. 78,382 71,632 64,182 58,682 38,232
Shareholders' equity.................................... 68,192 54,692 47,301 38,963 44,880
Other Operating Data:
As a percentage of average loans receivable:
Provision for loan losses............................ 12.3% 10.4% 9.9% 11.1% 9.4%
Net charge-offs...................................... 12.0% 9.7% 9.4% 10.6% 8.6%
Number of offices open at year-end...................... 410 379 360 336 282
</TABLE>
(1) The Company recorded a legal settlement of $5.4 million in fiscal 1999.
Excluding this settlement, net of the income tax benefit, net income and net
income per diluted common share would have been $10.8 million and $.56,
respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
General
The Company's financial performance continues to be dependent in large part
upon the growth in its outstanding loan receivables, the ongoing introduction of
new products and services for marketing to the customer base, the maintenance of
loan quality and acceptable levels of operating expenses. Since March 31, 1995,
gross loans receivable have increased at a 14.3% annual compounded rate from
$89.1 million to $173.6 million at March 31, 2000. The increase reflects both
the higher volume of loans generated through the Company's existing offices and
the contribution of loans generated from new offices opened or acquired over the
period. During this same five-year period, the Company has grown from 244
offices to 410 offices as of March 31, 2000. The Company plans to open or
acquire at least 25 new offices in each of the next two fiscal years.
The Company continues to identify new products and services for marketing
to its customer base. In addition to new insurance-related products which have
been introduced in selected states over the last several years, the Company
began to sell and finance electronic items and appliances to its existing
customer base. This program, the "World Class Buying Club," began in Texas in
February 1995 and has since been expanded into seven states, with further
expansion into the remaining three states expected during fiscal 2001. This
program's loan volume declined during fiscal 2000 to $3.6 million from $4.4
million during the prior year primarily due to greater emphasis by branch
personnel being placed on other products and services. As a result, the sales
finance portfolio decreased to $3.5 million, or 2.0% of total loans, at March
31, 2000. The Company plans to renew its efforts to aggressively market these
products, which have provided positive contributions in prior years and are
expected to enhance revenues and profits in fiscal 2001 and beyond.
The Company's ParaData Financial Systems subsidiary provides data
processing systems to 127 separate finance companies, including the Company, and
currently supports approximately 1,017 individual branch offices in 43 states.
During fiscal 2000, ParaData increased net revenues on system sales and support
to approximately $3.6 million, a 49.8% increase over fiscal 1999 net revenues.
This increase resulted in a pretax contribution to the Company of $1.8 million,
a 133.4% increase over its fiscal 1999 contribution. Additionally, and more
importantly, ParaData continued to provide state-of-the-art data processing
support for the Company's in-house integrated computer system.
Beginning in fiscal 1997, the Company expanded its product line on a
limited basis to include larger balance, lower risk and lower yielding,
individual consumer loans. Since that time, the Company has acquired 13 larger
loan offices and several bulk purchases of larger loans receivable.
Additionally, the Company has converted several of its traditional small-loan
offices into those offering the larger loan products, primarily in Georgia,
South Carolina and Tennessee. As of March 31, 2000, the larger class of loans
amounted to approximately $26.2 million, a 212.1% increase over the balance
outstanding at the end of the prior fiscal year. As a result of these efforts,
this portfolio has grown to 15.1% of the total loan balances as of the end of
the fiscal year. Management believes that these offices can support much larger
asset balances with lower expense and loss ratios, thus providing positive
contributions. While the Company does not intend to change its primary lending
focus from its small-loan business, it does intend to continue expanding the
larger loan product line into additional offices during the current fiscal year.
During fiscal 1999, the Company tested in 40 offices an income tax return
preparation and refund anticipation loan program. Based on the results of this
test, the Company expanded this program into all offices where permitted by the
lease agreements or approximately 390 offices in fiscal 2000. Due to certain
systems and service bureau problems encountered during the first two weeks of
the filing season, the program was less successful than anticipated; however, in
spite of these problems, the Company completed and filed approximately 16,000
tax returns, generating approximately $1 million in net revenue. The Company
believes that this is a beneficial service for its existing customer base due to
the earned income credit and believes that the program can become even more
profitable in fiscal 2001 and beyond.
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
The following table sets forth certain information derived from the
Company's consolidated statements of operations and balance sheets, as well as
operating data and ratios, for the periods indicated.
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------
2000 1999 1998
---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Average gross loans receivable (1).................................... $ 163,786 144,203 $ 125,094
Average loans receivable (2).......................................... 127,230 112,273 97,285
Expenses as a percentage of total revenue:
Provision for loan losses......................................... 14.9% 12.8% 11.9%
General and administrative(3)..................................... 58.7% 63.5% 66.3%
Total interest expense............................................ 5.7% 6.0% 6.9%
Operating margin (4).................................................. 26.4% 23.8% 21.8%
Return on average assets (5).......................................... 9.7% 8.4% 7.2%
Offices opened and acquired, net...................................... 31 19 24
Total offices (at period end)......................................... 410 379 360
</TABLE>
-------------
(1) Average gross loans receivable have been determined by averaging
month-end gross loans receivable over the indicated period.
(2) Average loans receivable have been determined by averaging month-end
gross loans receivable less unearned interest and deferred fees over
the indicated period.
(3) Excludes $5.4 million expense for legal settlement for the year ended
March 31, 1999. Including this one-time charge, the ratio would have
been 69.3% for the fiscal 1999 period.
(4) Operating margin is computed as total revenues less provision for
loan losses and general and administrative expenses (excluding the
legal settlement charge), as a percentage of total revenues.
Including the $5.4 million charge for the legal settlement, the
operating margin for the year ended March 31, 1999, would have been
17.9%.
(5) Excludes $5.4 million legal settlement, net of tax benefit, for the
year ended March 31, 1999. Including this one-time charge, the ratio
would have been 5.7% for the annual period.
Comparison of Fiscal 2000 Versus Fiscal 1999
Net income was $14.2 million in fiscal 2000, a $6.8 million, or 93.6%,
increase over the $7.3 million earned during fiscal 1999. The results for fiscal
1999 were greatly affected by the $5.4 million accrual for the legal settlement
recorded during that period (see Legal Settlement). Excluding this one-time
accrual, net of income tax benefits, net income for fiscal 2000 rose by $3.4
million, or 31.6%, over the adjusted fiscal 1999 earnings. This increase
resulted from an increase in operating income (revenues less provision for loan
losses and general and administrative expenses) of $5.9 million, or 27.1%,
offset by increases in interest expense and income taxes.
Interest and fee income during fiscal 2000 increased by $8.4 million, or
10.4%, over fiscal 1999. This increase resulted primarily from an increase of
$15.0 million, or 13.3%, in average loans receivable between the two fiscal
years. The increase in interest and fee income resulting from the larger loan
base was partially offset by a reduction in loan yields over the two fiscal
years, primarily due to an increase in the larger loan portfolio. These loans,
originated mainly in South Carolina , Georgia and Tennessee, have lower interest
rates than the traditional small loans; however, the overall returns on these
loans are enhanced by the sale of credit insurance and other ancillary products.
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
Insurance commissions and other income amounted to $16.2 million in fiscal
2000, a $5.1 million, or 46.4% increase over the $11.1 million, recorded in
fiscal 1999. Insurance commissions increased by $2.3 million, or 40.7%, and
other income increased by $2.8 million, or 52.6%. The improvement in insurance
commission revenue resulted primarily from the growth in the larger loan
portfolio, mainly in those states where credit insurance may be sold in
conjunction with the loan transaction. The increase in other income resulted
primarily from $1.1 million in additional net revenue generated by ParaData
Financial Systems ("ParaData"), the Company's computer subsidiary, combined with
approximately $1.0 million in net revenues generated by the new tax return
preparation and refund anticipation loan program. ParaData had an excellent year
in fiscal 2000, attracting several new customers. Its increased new revenue
resulted in approximately $1.8 million in pretax profit for the subsidiary
during fiscal 2000 compared with $792,000 earned in fiscal 1999. It is unlikely
that ParaData can sustain this level of profitability in fiscal 2001 and beyond;
however, it continues to fulfill its primary function of providing the Company
with one of the best processing systems available to the consumer finance
industry. The tax preparation program was new to the Company on a wide-scale
basis in fiscal 2000. Although systems and service bureau problems were
encountered during the first several weeks of the tax filing season, the Company
considered the program a success by filing approximately 16,000 tax returns and
generating approximately $1.0 million in net revenues. The Company plans to
continue to promote this program next year and believes it can be a substantial
contributor to earnings in the future.
Total revenues were $105.3 million during fiscal 2000, a 14.7% increase
over the $91.8 million in the prior fiscal year. Revenues from the 346 offices
that were open throughout both fiscal years increased by 8.6%.
The provision for loan losses during fiscal 2000 increased by $4.0
million, or 34.1%, from the previous year. This increase resulted from an
increase in the general allowance for loan losses, as well as an increase in
actual loan losses. As a percentage of average loans receivable, net charge-offs
rose to 12.0% during fiscal 2000 from 9.7% during the previous fiscal year. This
increase in net charge-offs resulted from a combination of factors, including a
reduction in non-file insurance available to offset losses in two states due to
the legal settlement; the growth in the loan portfolio in Illinois and Missouri,
two newer states where credit insurance is not sold; as well as a general
increase in losses.
General and administrative expenses, excluding the accrual for the legal
settlement in fiscal 1999, increased by $3.6 million, or 6.2%, over the two
fiscal years. The Company's profitability has benefited by improved expense
ratios as total general and administrative expenses as a percent of total
revenues has decreased from 63.5% during fiscal 1999 to 58.7% during the most
recent fiscal year. Additionally, the average general and administrative expense
per open office actually declined by .1% when comparing the two fiscal years.
Interest expense increased by $481,000, or 8.7%, in fiscal 2000 when
compared with the prior fiscal year. This increase was due to an increase in
average borrowings during the year as well as an increase in interest rates over
the two periods.
The Company's effective income tax rate increased to 34.8% in fiscal 2000
from 32.8% in fiscal 1999 primarily as a result of reduced benefits from the
Company's captive insurance subsidiary as well as increased state income taxes.
Comparison of Fiscal 1999 Versus Fiscal 1998
Net income for the fiscal year ended March 31, 1999, was $7.3 million. The
results for the year were greatly affected by legal expenses resulting from the
settlement of certain litigation (see Legal Settlement). The total cost of this
settlement was $5.24 million including the expense of complying with the terms
of the settlement ($5.4 million was accrued as an estimate in fiscal 1999, and
$156,000 was reversed in fiscal 2000). Excluding the settlement-related
expenses, as well as the related income tax benefit, net income amounted to
$10.8 million,
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
an increase of $2.7 million, or 33.0%, over fiscal 1998. This increase resulted
from an increase in operating income of $4.3 million, or 24.4%, offset by an
increase in income taxes.
Total revenues were $91.8 million during fiscal 1999, an increase of $11.1
million, or 13.8%, over fiscal 1998. Revenues from the 311 offices that were
open throughout both fiscal years increased by 8.9%. At March 31, 1999, the
Company had 379 offices in operation, a net increase of 19 offices during the
fiscal year.
During fiscal 1999, interest and fee income increased by $8.8 million, or
12.4%, over the previous fiscal year. This increase resulted primarily from an
increase in average loans receivable of $15.0 million, or 15.4%, over the two
fiscal years. The Company continued to see a decline in the overall yield on the
loan portfolio as the volume of larger loans and sales finance loans increased
over prior-year levels.
Insurance commissions and other income increased by $2.3 million, or 26.6%,
over the two fiscal years. Insurance commissions increased by $533,000, or
10.1%, as a result of increased loans outstanding in the four states where
credit insurance is sold in conjunction with the Company's loan products. Other
income increased by $1.8 million, or 51.9%, primarily as a result of increased
volume by the Company's sales finance program and greatly increased revenue by
ParaData Financial Systems. The gross profit from the World Class Buying Club
increased by $339,000, or 21.7%, over the two fiscal years, as the program was
expanded into two additional states during the year. ParaData's gross profits
increased by $925,000, or 63.4%, during fiscal 1999, primarily as a result of
several new systems that were installed for new customers during the period.
Additionally, increased sales of other ancillary products, such as Motor Club
Memberships and Accidental Death & Disability Insurance, further enhanced other
income during the 1999 fiscal year.
The provision for loan losses increased by $2.1 million, or 21.8%, when
comparing fiscal 1999 to fiscal 1998. This increase resulted from an increase in
the allowance for losses of $325,000, or 3.8%, combined with an increase in net
charge-offs of $1.7 million, or 18.6%. As a percentage of average loans
receivable, net charge-offs increased slightly from 9.4% during fiscal 1998 to
9.7% during fiscal 1999.
General and administrative expenses, excluding the legal settlement,
increased by $4.8 million, or 8.9%, during fiscal 1999 when compared to fiscal
1998. As a percentage of total revenues, these expenses decreased from 66.3% in
fiscal 1998 to 63.5% in the following year. The Company's expense ratios
benefited from the sale or combination of 10 unprofitable offices during the
year, as well as a reduction in the number of new offices that were opened
during this period. Excluding the expenses related to the Legal Settlement and
those associated with ParaData, overall general and administrative expenses,
when divided by average open offices increased by 3.3%.
Interest expense remained level over the two fiscal years. While the
Company's average level of debt outstanding increased by approximately 7.3% over
the two periods, the Company benefited from a reduction in interest rates during
this period as prime dropped from 8.5% at the beginning of the fiscal year to
7.75% at March 31, 1999.
The Company's effective income tax rate increased slightly to 32.8% in
fiscal 1999 from 32.6% in fiscal 1998 as a result of reduced benefits from the
Company's captive insurance subsidiary.
Credit Loss Experience
Delinquency is computed on the basis of the date of the last full
contractual payment on a loan (known as the recency method) and on the basis of
the amount past due in accordance with original payment terms of a loan (known
as the contractual method). Management closely monitors portfolio delinquency
using both methods to measure the quality of the Company's loan portfolio and
the probability for credit losses.
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
The Company maintains an allowance for loan losses in an amount that, in
management's opinion, is adequate to cover losses inherent in the existing loan
portfolio. The Company charges against current earnings, as a provision for loan
losses, amounts added to the allowance to maintain it at levels expected to
cover probable future losses of principal. The Company's policy is to charge off
loans on which a full contractual installment has not been received during the
prior 180 days, or sooner if the loan is deemed uncollectible. Collection
efforts on charged-off loans continue until the obligation is satisfied or until
it is determined such obligation is not collectible or the cost of continued
collection efforts will exceed the potential recovery. Recoveries of previously
charged-off loans are credited to the allowance for loan losses.
When establishing the allowance for loan losses, the Company took into
consideration the growth of the loan portfolio, the mix of the loan portfolio,
current levels of charge-offs, current levels of delinquencies, and current
economic factors. As previously noted, the Company experienced an increase in
net charge-offs as a percentage of loans. The impact of this change was offset
to a certain extent by an improvement in delinquent loans as a percentage of
total loans. While management uses the best information available to make
evaluations, future adjustments to the allowance for loan losses may be
necessary if conditions differ substantially from the assumptions used in making
the calculations.
The following table sets forth the Company's allowance for loan losses at
the end of the fiscal years ended March 31, 2000, 1999, and 1998, and the credit
loss experience over the indicated periods:
<TABLE>
<CAPTION>
At or for the
Years Ended March 31,
---------------------------------------
2000 1999 1998
--------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for loan losses........................................... $ 10,008 $ 8,769 $ 8,444
Percentage of loans receivable...................................... 7.4% 7.5% 8.2%
Provision for loan losses........................................... $ 15,697 $ 11,707 $ 9,609
Net charge-offs..................................................... $ 15,284 $ 10,863 $ 9,158
Net charge-offs as a percentage of average loans receivable (1)..... 12.0% 9.7% 9.4%
</TABLE>
-------------
(1) Average loans receivable have been determined by averaging month-end gross
loans receivable less unearned interest and deferred fees over the indicated
period.
The following table classifies the gross loans receivable of the Company
that were delinquent on a recency and contractual basis for at least 60 days at
March 31, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
At March 31,
----------------------------------------
2000 1999 1998
--------- --------- -----------
(Dollars in thousands)
Recency basis:
<S> <C> <C> <C>
60 - 89 days past due............................................. $ 2,601 $ 2,163 $ 1,901
90 - 179 days past due............................................ 1,196 1,047 712
------- ------- ------
Total........................................................... $ 3,797 $ 3,210 $ 2,613
======= ======= ======
Percentage of period end gross loans receivable..................... 2.2% 2.1% 2.0%
Contractual basis:
60 - 89 days past due............................................. $ 3,298 $ 2,766 $ 2,360
90 - 179 days past due............................................ 2,818 2,609 1,952
------- ------- ------
Total........................................................... $ 6,116 $ 5,375 $ 4,312
======= ======= ======
Percentage of period end gross loans receivable..................... 3.5% 3.6% 3.3%
</TABLE>
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
Quarterly Information and Seasonality
The Company's loan volume and corresponding loans receivable follow
seasonal trends. The Company's highest loan demand typically occurs from October
through December, its third fiscal quarter. Loan demand has generally been the
lowest and loan repayment highest from January to March, its fourth fiscal
quarter. Loan volume and average balances typically remain relatively level
during the remainder of the year. This seasonal trend affects quarterly
operating performance through corresponding fluctuations in interest and fee
income and insurance commissions earned and the provision for loan losses
recorded, as well as fluctuations in the Company's cash needs. Consequently,
operating results for the Company's third fiscal quarter generally are
significantly lower than in other quarters and operating results for its fourth
fiscal quarter significantly higher than in other quarters.
The following table sets forth certain items included in the Company's
unaudited consolidated financial statements and the offices open during fiscal
years 1999 and 2000.
<TABLE>
<CAPTION>
At or for the Three Months Ended
-----------------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1999 1999 1999 1999 2000
--------- --------- --------- --------- --------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $ 20,734 $ 21,682 $ 23,836 $ 25,510 $ 24,327 $ 25,513 $ 26,930 $ 28,506
Provision for
loan losses....... 2,360 3,112 4,262 1,973 3,039 4,573 5,540 2,545
General and
administrative
expenses.......... 13,925 19,696 15,012 15,000 15,301 14,723 15,886 15,925
Net income (loss).... 2,133 (1,670) 2,054 4,803 3,056 3,129 2,586 5,398
Gross loans
receivable........ $ 136,061 $ 141,133 $ 166,479 $ 149,571 $ 159,182 $ 163,228 $ 182,900 $ 173,609
Number of
offices open...... 366 374 383 379 387 399 404 410
</TABLE>
Current Accounting Issues
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. This
effective date reflects the deferral provided by SFAS 137, which defers the
earlier effective date specified in SFAS 133. The Company does not anticipate
that adoption of SFAS 133 will have a material effect on its financial
statements.
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company has financed its operations, acquisitions and office expansion
through a combination of cash flow from operations and borrowings from its
institutional lenders. The Company has generally applied its cash flow from
operations to fund its increasing loan volume, to fund acquisitions, to repay
long-term indebtedness, and to repurchase its common stock. As the Company's
gross loans receivable increased from $113.4 million at March 31, 1997, to
$173.6 million at March 31, 2000, net cash provided by operating activities for
fiscal years 1998, 1999, and 2000 was $19.0 million, $20.7 million, and $31.9
million, respectively.
The Company's primary ongoing cash requirements relate to the funding of
new offices and acquisitions, the overall growth of loans outstanding, the
repayment of long-term indebtedness and the repurchase of its common stock. The
Company repurchased 1,986,000 shares of its common stock under its repurchase
program, for an aggregate purchase price of approximately $16.0 million, between
February 1996 and October 1996. Because of certain loan agreement restrictions,
the Company suspended its stock repurchases in October 1996. The stock
repurchase program was reinstated in January 2000, and 144,000 shares, for an
aggregate purchase price of $724,000, were purchased in fiscal 2000. The Company
believes stock repurchases to be a viable component of the Company's long-term
financial strategy and an excellent use of excess cash when the opportunity
arises. In addition, the Company plans to open or acquire at least 25 new
offices in each of the next two fiscal years. Expenditures by the Company to
open and furnish new offices generally averaged approximately $15,000 per office
during fiscal 2000. New offices have also required from $100,000 to $400,000 to
fund outstanding loans receivable originated during their first 12 months of
operation.
The Company acquired 12 offices and a number of loan portfolios from
competitors in eight states in 24 separate transactions during fiscal 2000.
Gross loans receivable purchased in these transactions were approximately $13.5
million in the aggregate at the dates of purchase. The Company believes that
attractive opportunities to acquire new offices or receivables from its
competitors or to acquire offices in communities not currently served by the
Company will continue to become available as conditions in local economies and
the financial circumstances of owners change.
On December 1, 1999, the Company paid the fifth and final installment on
its 8.5% Senior Term Notes of $4.0 million. The Company financed the
acquisitions and the Term Note repayment with borrowings under its revolving
credit facility.
The Company has an $85.0 million revolving credit facility with a syndicate
of banks. The credit facility will expire on September 30, 2001. Funds borrowed
under the revolving credit facility bear interest, at the Company's option, at
either the agent bank's prime rate per annum or the LIBOR rate plus 1.60% per
annum. At March 31, 2000, the interest rate on borrowings under the revolving
credit facility was 7.87%. The Company pays a commitment fee equal to 0.375% of
the daily unused portion of the revolving credit facility. Amounts outstanding
under the revolving credit facility may not exceed specified percentages of
eligible loans receivable. On March 31, 2000, $67.9 million was outstanding
under this facility, and there was $17.1 million of unused borrowing
availability under the borrowing base limitations.
On June 30, 1997, the Company issued $10.0 million of senior subordinated
secured notes. These notes mature in five annual installments of $2.0 million
beginning June 30, 2000, and ending June 30, 2004, and bear interest at 10.0%,
payable quarterly. The notes were issued at a discounted price equal to 99.6936%
and may be prepaid subject to certain prepayment penalties. Borrowings under the
revolving credit facility and the senior subordinated notes are secured by a
lien on substantially all the tangible and intangible assets of the Company and
its subsidiaries pursuant to various security agreements.
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
The Company's credit agreements contain a number of financial covenants,
including minimum net worth and fixed charge coverage requirements. The credit
agreements also contain certain other covenants, including covenants that impose
limitations on the Company with respect to (i) declaring or paying dividends or
making distributions on or acquiring common or preferred stock or warrants or
options; (ii) redeeming or purchasing or prepaying principal or interest on
subordinated debt; (iii) incurring additional indebtedness; and (iv) entering
into a merger, consolidation or sale of substantial assets or subsidiaries. The
senior subordinated notes are also subject to prepayment penalties. The Company
believes that it is in compliance with these agreements and does not believe
that these agreements will materially limit its business and expansion strategy.
The Company believes that cash flow from operations and borrowings under
its revolving credit facility will be adequate to fund the expected cost of
opening or acquiring new offices, including funding initial operating losses of
new offices and funding loans receivable originated by those offices and the
Company's other offices and the scheduled repayment of the senior subordinated
notes. The Company needs to increase the borrowing limits under its revolving
credit facility from time to time and does not anticipate this to be a problem;
however, there can be no assurance that this additional funding will be
available when needed.
Inflation
The Company does not believe that inflation has a material adverse effect
on its financial condition or results of operations. The primary impact of
inflation on the operations of the Company is reflected in increased operating
costs. While increases in operating costs would adversely affect the Company's
operations, the consumer lending laws of three of the ten states in which the
Company operates allow indexing of maximum loan amounts to the Consumer Price
Index. These provisions will allow the Company to make larger loans at existing
interest rates in those states, which could offset the potential increase in
operating costs due to inflation.
Year 2000
The Company recognized a potential business risk associated with the
failure of computerized systems and products to correctly recognize and process
dates beyond 1999. This problem is commonly called the "year 2000 problem."
Accordingly, the Company attempted to identify and assess its particular areas
of risk related to the year 2000 problem.
The Company determined that its primary software package, the "Loan Manager
System," developed and maintained by its wholly owned subsidiary, ParaData
Financial Systems, was year 2000 compliant. The Company also received assurance
from several outside vendors on whom it depends for various processes such as
payroll, general ledger and benefits administration, that these systems were
year 2000 compliant. The Company's total costs of addressing the year 2000
problem were immaterial, and the Company did not experience any disruptions to
its business as a result of the change to calendar year 2000.
Legal Settlement
From April 1995 through July 1999, the Company and several of its
subsidiaries were parties to litigation challenging the Company's non-filing
insurance practices. Non-filing insurance is an insurance product that lenders
like the Company can purchase in lieu of filing a UCC financing statement
covering the collateral of their borrowers. The litigation against the Company
was consolidated with other litigation against other finance companies, jewelry
and furniture retailers, and insurance companies in a purported nationwide class
action in the U.S. District Court in Alabama under the caption In re:
Consolidated "Non-filing Insurance" Fee Litigation (Multidistrict Litigation
Docket No. 1130), U.S. District Court, Middle District of Alabama, Northern
Division).
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
On November 11, 1998, the Company and its subsidiaries named in the action
entered into a settlement agreement pursuant to which the Company agreed to
settle all claims alleged in the litigation involving it and its subsidiaries
for an aggregate cash payment of $5 million. In addition, the terms of the
settlement curtailed certain non-filing practices by the Company and its
subsidiaries and allowed the court to approve criteria defining those
circumstances in which the Company's subsidiaries could make non-filing
insurance claims going forward. As a result of the settlement, non-filing
insurance fees charged to borrowers were reduced by 25%. The settlement
agreement, which includes the settlement by several other defendants in the
litigation, including the Company's insurer, was approved by the Court.
The Company recorded an accrual for settlement costs, including the
expected expenses to comply with the terms of the settlement, of $5.4 million in
the fiscal year ended March 31, 1999. Of this total accrual, $5.0 million was
paid to an escrow account and has been distributed to class participants, and
$244 thousand in costs were incurred in completing the settlement. The remaining
$156 thousand of the accrual was reversed in fiscal 2000. The settlement limited
and reduced the coverage for the types of losses with respect to which its
subsidiaries submit claims. The Company does not believe that those limitations
and reductions will have a material adverse effect on the Company's results of
operations.
Other Legal Matters
The Company was named as a defendant in an action, Turner v. World
Acceptance Corp., filed in the district court for the Fourteenth Judicial
District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20, 1997. That action
(the Tulsa Case) named the Company and numerous other consumer finance companies
as defendants, and sought certification as a statewide class action. The Tulsa
Case alleges that the Company and other consumer finance defendants collected
excess finance charges in connection with refinancing certain consumer finance
loans in Oklahoma and seeks money damages and an injunction against further
collection of such charges. The Tulsa Case also challenged the constitutionality
of the provisions of the Oklahoma Consumer Credit Code ("OCCC") under which the
Company operates. The Company filed an answer in the action denying the
allegations. On March 16, 1999, the District Court granted summary judgment in
favor of the Company and the other consumer finance companies and dismissed the
Tulsa Case. The plaintiffs in the Tulsa Case appealed that order, and their
appeal remains pending before the Oklahoma Court of Appeals.
The Tulsa Case is based on an opinion of the Oklahoma Attorney General
issued on February 20, 1997, interpreting a provision of the OCCC with respect
to the permitted amount of certain loan refinance charges in a manner contrary
to regulatory practice that had been in existence in Oklahoma since 1969. On the
basis of that opinion the Administrator of the Oklahoma Department of Consumer
Credit (the "Department") notified the Company and the other consumer finance
companies that the Department would begin enforcing the provisions of the OCCC
as interpreted by the Attorney General's opinion on March 3, 1997. In response
to the Attorney General's opinion and the Department's threat, the Company and
numerous other consumer finance companies brought suit (the "Administrator's
Case") to enjoin enforcement by the Department of the OCCC as interpreted by the
Attorney General. Shortly thereafter, the Oklahoma Legislature enacted
amendments to the relevant provision of the OCCC which became effective on
August 29, 1997, and which negated the effect of the Attorney General's
interpretation.
Although the Company and the other consumer finance companies were
successful at the trial court level in the Administrator's Case, in May 1999 the
Oklahoma Supreme Court upheld the Attorney General's interpretation. The
Oklahoma Supreme Court's decision expressly limited the application of the
Attorney General's interpretation of the OCCC to the period between March 3,
1997, and August 29, 1997, and it expressly refrained from reaching the issue of
whether refunds of charges assessed during that period were required.
<PAGE>
Management's Discussion and Analysis
--------------------------------------------------------------------------------
The Attorney General has recently directed the Department to proceed with
administratively ordering refunds of those charges. The Company and several of
the other consumer finance companies contend that for numerous reasons, the
Department lacks both the authority and the legal basis to order refunds. The
Company and the other consumer finance companies are attempting to open
discussions with the Department and the Attorney General with the goal of
resolving both the issues concerning an attempted administrative order of
refunds and the issues that remain pending in the Tulsa Case. It is far too
early to predict whether those discussions, if they can be initiated, will be
successful. Nonetheless, because of the 1997 amendments to the OCCC, the Company
expects that even if both the Tulsa Case and the Department's attempts at
administratively ordering refunds are decided adversely to the Company, those
results would not materially affect the Company's refinancing practices in
Oklahoma going forward. Such adverse decisions could involve a material monetary
award; however, in the opinion of management the likelihood of such a material
monetary award is not currently deemed to be probable. The Company intends to
continue to defend vigorously against both the Tulsa Case and the Department's
threat to administratively order refunds, while at the same time, exploring
every possibility of reaching a satisfactory non-judicial resolution of all of
the issues.
At March 31, 2000, the Company and certain of its subsidiaries have been
named as defendants in various other legal actions arising from their normal
business activities in which damages in various amounts are claimed. Although
the amount of any ultimate liability with respect to such other matters cannot
be determined, in the opinion of management, and based upon the advice of
counsel, any such liability will not have a material adverse effect on the
Company's consolidated financial statements taken as a whole.
Forward-Looking Statements
This annual report, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's beliefs and
assumptions, as well as information currently available to management.
Specifically, management's statements of expectations with respect to the
litigation described above in "Other Legal Matters," may be deemed
forward-looking statements. When used in this document, the words "anticipate,"
"estimate," "expect," and similar expressions may identify forward-looking
statements. Although the Company believes that the expectations reflected in any
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Any such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the Company's actual financial results, performance or financial condition may
vary materially from those anticipated, estimated or expected. Among the key
factors that could cause the Company's actual financial results, performance or
condition to differ from the expectations expressed or implied in such
forward-looking statements are the following: changes in interest rates; risks
inherent in making loans, including repayment risks and value of collateral;
recently enacted or proposed legislation; the occurrence of non-filing claims at
historical levels in circumstances validated by the Settlement; the timing and
amount of revenues that may be recognized by the Company; changes in current
revenue and expense trends (including trends affecting charge-offs); changes in
the Company's markets and general changes in the economy (particularly in the
markets served by the Company); the unpredictable nature of litigation; and
other matters discussed in this annual report and the Company's filings with the
Securities and Exchange Commission.
<PAGE>
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
----------------------------------
2000 1999
--------------- ------------
Assets
<S> <C> <C>
Cash............................................................................ $ 1,690,676 1,236,207
Gross loans receivable.......................................................... 173,609,123 149,570,861
Less:
Unearned interest and deferred fees........................................ (37,949,381) (32,231,831)
Allowance for loan losses.................................................. (10,008,257) (8,769,367)
------------- -------------
Loans receivable, net.................................................. 125,651,485 108,569,663
Property and equipment, net..................................................... 6,752,791 6,299,662
Other assets, net............................................................... 8,269,399 7,536,987
Intangible assets, net.......................................................... 11,108,477 9,827,885
------------- -------------
$ 153,472,828 133,470,404
============= =============
Liabilities and Shareholders' Equity
Liabilities:
Senior notes payable....................................................... 67,900,000 61,150,000
Subordinated notes payable................................................. 10,000,000 10,000,000
Other note payable......................................................... 482,000 482,000
Income taxes payable....................................................... 2,059,441 1,940,091
Accounts payable and accrued expenses...................................... 4,839,001 5,206,483
------------- -------------
Total liabilities...................................................... 85,280,442 78,778,574
------------- -------------
Shareholders' equity:
Preferred stock, no par value
Authorized 5,000,000 shares............................................ - -
Common stock, no par value
Authorized 95,000,000 shares; issued and outstanding 18,887,573 and
19,016,573 shares at March 31, 2000 and 1999, respectively............. - -
Additional paid-in capital................................................. 267,958 935,921
Retained earnings.......................................................... 67,924,428 53,755,909
------------- -------------
Total shareholders' equity............................................. 68,192,386 54,691,830
------------- -------------
Commitments and contingencies
$ 153,472,828 133,470,404
=========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------------------------------
2000 1999 1998
-------------- ------------- ------------
Revenues:
<S> <C> <C> <C>
Interest and fee income.................................... $ 89,051,419 80,676,687 71,872,739
Insurance commissions and other income..................... 16,224,444 11,085,548 8,753,768
------------- ------------- -------------
Total revenues .......................................... 105,275,863 91,762,235 80,626,507
------------- ------------- -------------
Expenses:
Provision for loan losses.................................. 15,697,165 11,707,392 9,608,495
------------- ------------- -------------
General and administrative expenses:
Personnel.............................................. 39,498,066 37,055,930 32,922,691
Occupancy and equipment......................................... 6,917,420 6,358,974 6,099,711
Data processing................................................. 1,501,667 1,437,421 1,309,845
Advertising .................................................. 3,932,663 4,063,755 4,179,616
Legal................................................. 183,095 5,844,864 441,246
Amortization of intangible assets...................... 1,472,108 1,309,632 1,432,076
Other.................................................. 8,330,131 7,562,355 7,084,384
------------- ------------- -------------
61,835,150 63,632,931 53,469,569
------------- ------------- -------------
Interest expense........................................... 6,015,029 5,534,315 5,541,002
------------- ------------- -------------
Total expenses.................................... 83,547,344 80,874,638 68,619,066
------------- ------------- -------------
Income before income taxes...................................... 21,728,519 10,887,597 12,007,441
------------- ------------- -------------
Income taxes.................................................... 7,560,000 3,568,000 3,909,000
------------- ------------- -------------
Net income...................................................... $ 14,168,519 7,319,597 8,098,441
============= ============= =============
Net income per common share:
Basic...................................................... $ .75 .39 .43
============= ============= =============
Diluted.................................................... $ .74 .38 .42
============= ============= =============
Weighted average shares outstanding:
Basic...................................................... 19,003,380 19,010,789 18,959,348
============= ============= =============
Diluted.................................................... 19,155,042 19,212,813 19,172,456
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Paid-in Retained
Capital Earnings Total
------- -------- -----
<S> <C> <C> <C>
Balances at March 31, 1997........................................ $ 625,592 38,337,871 38,963,463
Proceeds from exercise of stock options (62,000 shares),
including tax benefits of $58,543.............................. 239,376 - 239,376
Net income........................................................ - 8,098,441 8,098,441
----------- ------------ ------------
Balances at March 31, 1998........................................ 864,968 46,436,312 47,301,280
Proceeds from exercise of stock options (18,000 shares),
including tax benefits of $18,453.............................. 70,953 - 70,953
Net income........................................................ - 7,319,597 7,319,597
----------- ------------ ------------
Balances at March 31, 1999........................................ 935,921 53,755,909 54,691,830
Proceeds from exercise of stock options (15,000 shares),
including tax benefits of $11,932.............................. 55,682 - 55,682
Common stock repurchases (144,000 shares)......................... (723,645) - (723,645)
Net income........................................................ - 14,168,519 14,168,519
----------- ------------ ------------
Balances at March 31, 2000........................................ $ 267,958 67,924,428 68,192,386
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------
2000 1999 1998
------------- ------------ -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ...................................................... $14,168,519 7,319,597 8,098,441
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets .............................. 1,472,108 1,309,632 1,432,076
Amortization of loan costs and discounts............................. 87,195 119,741 73,636
Provision for loan losses............................................ 15,697,165 11,707,392 9,608,495
Depreciation ....................................................... 1,490,642 1,428,619 1,456,052
Change in accounts:
Other assets, net............................................. (819,607) (1,463,428) (1,742,179)
Income taxes payable................................................. 131,282 (836,575) (322,645)
Accounts payable and accrued expenses................................ (367,482) 1,102,972 438,919
------------ ------------ ------------
Net cash provided by operating activities................... 31,859,822 20,687,950 19,042,795
------------ ------------ ------------
Cash flows from investing activities:
Increase in loans receivable, net................................. (23,207,673) (21,064,511) (13,857,947)
Net assets acquired from office acquisitions, primarily loans..... (9,622,912) (4,311,115) (7,450,022)
Increase in intangible assets from acquisitions................... (2,752,700) (1,527,123) (1,925,437)
Purchases of property and equipment, net.......................... (1,892,173) (1,264,105) (1,763,684)
------------ ------------ ------------
Net cash used by investing activities................................ (37,475,458) (28,166,854) (24,997,090)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds (repayments) of senior revolving notes
payable, net................................................... 10,750,000 11,450,000 (500,000)
Repayment of senior term notes payable............................ (4,000,000) (4,000,000) (4,000,000)
Proceeds from senior subordinated notes........................... - - 10,000,000
Proceeds from exercise of stock options........................... 43,750 52,500 180,833
Repurchase of common stock........................................ (723,645) - -
------------- ------------ ------------
Net cash provided by financing activities................... 6,070,105 7,502,500 5,680,833
------------ ------------ ------------
Increase (decrease) in cash.......................................... 454,469 23,596 (273,462)
Cash at beginning of year............................................ 1,236,207 1,212,611 1,486,073
------------ ------------ ------------
Cash at end of year.................................................. $ 1,690,676 1,236,207 1,212,611
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
------------------------------------------
The Company's accounting and reporting policies are in accordance with
generally accepted accounting principles and conform to general
practices within the finance company industry. The following is a
description of the more significant of these policies used in preparing
the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of World
Acceptance Corporation and its wholly owned subsidiaries (the
"Company"). Subsidiaries consist of operating entities in various
states, ParaData Financial Systems, a software company acquired during
fiscal 1994, and WAC Holdings Ltd., a captive reinsurance company
established in fiscal 1994. All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company operates primarily as one business segment, which is a
consumer finance company. The Company has operations through ParaData
Financial Systems (ParaData), which provides data processing systems to
127 separate finance companies, including the Company. At March 31,
2000 and 1999, ParaData had total assets of $3,912,252 and $2,063,070,
respectively. For the year ended March 31, 2000, 1999 and 1998,
ParaData had income before income taxes of $1,847,042, $791,529, and
$13,525, respectively. Total net revenues (sales and systems support
less cost of sales) for ParaData for the years ended March 31, 2000,
1999 and 1998 were $3,570,297, $2,383,578 and $1,458,942, respectively.
Loans and Interest Income
The Company is licensed to originate direct cash consumer loans in the
states of Georgia, South Carolina, Texas, Oklahoma, Louisiana,
Tennessee, Missouri, Illinois, New Mexico and Kentucky. During fiscal
2000 and 1999, the Company originated loans generally ranging up to
$3,000, with terms of 36 months or less. Experience indicates that a
majority of the direct cash consumer loans are renewed.
Fees received and direct costs incurred for the origination of loans
are deferred and amortized to interest income over the contractual
lives of the loans. Unamortized amounts are recognized in income at the
time that loans are renewed or paid in full.
Loans are carried at the gross amount outstanding reduced by unearned
interest and insurance income, net deferred origination fees and direct
costs, and an allowance for loan losses. Unearned interest is deferred
at the time the loans are made and accreted to income on a collection
method, which approximates the level yield method. Charges for late
payments are credited to income when collected.
The Company generally offers its loans at the prevailing statutory
rates for terms not to exceed 36 months. Management believes that the
carrying value approximates the fair value of its loan portfolio.
Allowance for Loan Losses
Additions to the allowance for loan losses are based on management's
evaluation of the loan portfolio under current economic conditions, the
volume of the loan portfolio, overall portfolio quality, review of
specific loans, charge-off experience, and such other factors which, in
management's judgment, deserve recognition in estimating loan losses.
Loans are charged off at the earlier of when such loans are deemed
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
to be uncollectible or when six months have elapsed since the date of
the last full payment. The net balance of loans deemed to be
uncollectible is charged against the loan loss allowance. Recoveries of
previously charged-off loans are credited to the allowance for loan
losses. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
calculations.
At March 31, 2000 and 1999, there were no concentrations of loans in
any local economy, type of property, or to any one borrower.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is recorded using the straight-line
method over the estimated useful life of the related asset as follows:
building, 40 years; furniture and fixtures, 5 to 10 years; equipment, 3
to 7 years; and vehicles, 3 years. Amortization of leasehold
improvements is recorded using the straight-line method over the lesser
of the estimated useful life of the asset or the term of the lease.
Additions to premises and equipment and major replacements or
betterments are added at cost. Maintenance, repairs, and minor
replacements are charged to operating expense as incurred. When assets
are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Other Assets
Other assets include costs incurred in connection with originating
long-term debt. Such remaining unamortized costs aggregated $183,236
and $232,930 at March 31, 2000 and 1999, respectively, and are
amortized as interest expense over the life of the respective
indebtedness.
Intangible Assets
Intangible assets include the cost of acquiring existing customers, the
value assigned to noncompete agreements, costs incurred in connection
with the acquisition of loan offices, and goodwill (the excess cost
over the fair value of the net assets acquired). These assets are being
amortized on a straight-line basis over the estimated useful lives of
the respective assets as follows: 8 to 10 years for customer lists, 5
to 10 years for noncompete agreements and acquisition costs, and 10
years for goodwill. Management periodically evaluates the
recoverability of the unamortized balances of these assets and adjusts
them as necessary.
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosures about the Fair Value
of Financial Instruments" (SFAS 107) in December 1991. SFAS 107
requires disclosures about the fair value of all financial instruments
whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
prices are not available, fair values are based on estimates using
present value or other valuation techniques. The carrying amount of
financial instruments included in the financial statements are deemed
reasonable estimates of their fair value because of their variable
repricing features and/or their short terms to maturity.
Insurance Premiums
Insurance premiums for credit life, accident and health, property and
unemployment insurance written in connection with certain loans, net of
refunds and applicable advance insurance commissions retained by the
Company, are remitted monthly to an insurance company. All commissions
are credited to unearned insurance commissions and recognized as income
over the life of the related insurance contracts using a method similar
to that used for the recognition of interest income.
Non-file Insurance
Non-file premiums are charged on certain loans at inception and renewal
in lieu of recording and perfecting the Company's security interest in
the assets pledged on certain loans and are remitted to a third-party
insurance company for non-file insurance coverage. Such insurance and
the related insurance premiums, claims, and recoveries are not
reflected in the accompanying consolidated financial statements except
as a reduction in loan losses (see note 6).
Certain losses related to such loans, which are not recoverable through
life, accident and health, property, or unemployment insurance claims
are reimbursed through non-file insurance claims subject to policy
limitations. Any remaining losses are charged to the allowance for loan
losses.
Income Taxes
The Company uses the asset and liability method of accounting for
income taxes required by SFAS No. 109, "Accounting for Income Taxes".
Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
Supplemental Cash Flow Information
For the years ended March 31, 2000, 1999, and 1998, the Company paid
interest of $5,977,647, $5,784,930, and $5,391,147, respectively.
For the years ended March 31, 2000, 1999 and 1998, the Company paid
income taxes of $7,913,718, $5,661,575, and $5,406,645, respectively.
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Supplemental non-cash financing activities for the years ended March
31, 2000, 1999, and 1998, consist of:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ----------- --------
<S> <C> <C> <C>
Tax benefits from exercise of stock options.................. $ 11,932 18,453 58,543
====== ====== ======
</TABLE>
Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128,
"Earnings per Share." Basic EPS includes no dilution and is computed by
dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could
share in the earnings of the Company. Potential common stock included
in the diluted EPS computation consists of stock options which are
computed using the treasury stock method.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," issued in
October 1995, allows a company to either adopt the fair value method of
valuation or continue using the intrinsic valuation method presented
under Accounting Principles Board (APB) Opinion 25 to account for
stock-based compensation. The fair value method recommended in SFAS No.
123 requires a company to recognize compensation expense based on the
fair value of the option on the grant date. The intrinsic value method
measures compensation expense as the difference between the quoted
market price of the stock and the exercise price of the option on the
date of grant. The Company has elected to continue using APB Opinion 25
and has disclosed in the footnotes pro forma net income and earnings
per share information as if the fair value method had been applied.
Reclassification
Certain reclassification entries have been made for fiscal 1999 and
1998 to conform with fiscal 2000 presentation. There was no impact on
shareholders' equity or net income previously reported as a result of
these reclassifications.
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(2) Allowance for Loan Losses
-------------------------
The following is a summary of the changes in the allowance for loan
losses for the years ended March 31, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------
2000 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Balance at the beginning of the year....................... $ 8,769,367 8,444,563 6,283,459
Provision for loan losses.................................. 15,697,165 11,707,392 9,608,495
Loan losses................................................ (16,766,909) (12,256,626) (10,436,240)
Recoveries................................................. 1,482,439 1,393,437 1,278,616
Allowance on acquired loans, net of specific charge-offs... 826,195 (519,399) 1,710,233
------------ ----------- ------------
Balance at the end of the year............................. $ 10,008,257 8,769,367 8,444,563
============ =========== ============
</TABLE>
The allowance on acquired loans represents specific reserves
established on bulk loan purchases and is shown in the above
roll-forward net of subsequent charge-offs related to the same
purchased loans.
(3) Property and Equipment
----------------------
Summaries of property and equipment follow:
<TABLE>
<CAPTION>
March 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Land................................................................. $ 250,443 250,443
Buildings and leasehold improvements................................. 2,696,916 2,550,763
Furniture and equipment.............................................. 11,045,811 9,600,998
------------ ------------
13,993,170 12,402,204
Less accumulated depreciation and amortization....................... (7,240,379) (6,102,542)
---------- -------------
Total........................................................... $ 6,752,791 6,299,662
============ ============
</TABLE>
(4) Intangible Assets
-----------------
Intangible assets, net of accumulated amortization, consist of:
<TABLE>
<CAPTION>
March 31,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cost of acquiring existing customers................................. $ 4,045,160 1,994,782
Value assigned to noncompete agreements.............................. 5,687,007 6,228,480
Goodwill............................................................. 1,105,768 1,271,633
Other................................................................ 270,542 332,990
------------ ------------
Total........................................................... $ 11,108,477 9,827,885
============ ============
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(5) Notes Payable
-------------
Summaries of the Company's notes payable follow:
Senior Credit Facilities
$85,000,000 Revolving Credit Facility - This facility provides for
borrowings of up to $85.0 million, with $67.9 million outstanding
at March 31, 2000, subject to a borrowing base formula. The
Company may borrow, at its option, at the rate of prime or LIBOR
plus 1.60%. At March 31, 2000, the Company's interest rate was
7.87% and the unused amount available under the revolver was $17.1
million. The revolving credit facility has a commitment fee of 3/8
of 1% on the unused portion of the commitment. Borrowings under
the revolving credit facility mature on September 30, 2001.
$10,000,000 Senior Subordinated Secured Notes - These notes mature
in five annual installments of $2.0 million beginning June 30,
2000 and ending June 30, 2004, and bear interest at 10.0%, payable
quarterly. The notes were issued at a discounted price equal to
99.6936% and may be prepaid subject to certain prepayment
penalties.
Substantially all of the Company's assets are pledged as
collateral for borrowings under the revolving credit agreement.
The Company's assets are also pledged as collateral for the senior
subordinated notes on a subordinated basis.
Other Note Payable
The Company also has a $482,000 note payable to an unaffiliated
insurance company, bearing interest at 10%, payable annually,
which matures in September 2001.
The various debt agreements contain restrictions on the amounts of
permitted indebtedness, investments, working capital, repurchases of
common stock and cash dividends. At March 31, 2000, approximately
$6,676,000 was available under these covenants for the payment of cash
dividends, or the repurchase of the Company's common stock. In
addition, the agreements restrict liens on assets and the sale or
transfer of subsidiaries. The Company was in compliance with the
various debt covenants for all periods presented.
The aggregate annual maturities of the notes payable for each of the
fiscal years subsequent to March 31, 1999, are as follows: 2001,
$2,000,000; 2002, $70,382,000; 2003, $2,000,000; 2004, $2,000,000;
2005, $2,000,000.
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(6) Non-file Insurance
------------------
The Company maintains non-file insurance coverage with an unaffiliated
insurance company. Premiums, claims paid, and recoveries under this
coverage are not included in the accompanying financial statements
except as a reduction of loan losses. The following is a summary of the
non-file insurance activity for the years ended March 31, 2000, 1999,
and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------- ----------- --------
<S> <C> <C> <C>
Insurance premiums written................ $ 2,820,257 3,162,825 3,257,517
Recoveries on claims paid................. $ 368,971 367,756 334,812
Claims paid............................... $ 2,957,540 3,200,486 3,267,005
</TABLE>
(7) Leases
------
The Company conducts most of its operations from leased facilities,
except for its owned corporate office building. It is expected that in
the normal course of business, expiring leases will be renewed at the
Company's option or replaced by other leases or acquisitions of other
properties.
The future minimum lease payments under noncancelable operating leases
as of March 31, 2000, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001..................................................................... $ 2,936,470
2002..................................................................... 1,743,801
2003..................................................................... 1,058,036
2004 .................................................................... 485,264
2005 .................................................................... 219,054
Thereafter............................................................... 36,000
----------
Total future minimum lease payments............................. $ 6,478,625
=========
</TABLE>
Rental expense for cancelable and noncancelable operating leases for
the years ended March 31, 2000, 1999, and 1998, was $3,542,209,
$3,180,150, and $2,929,002, respectively.
(8) Income Taxes
------------
Income tax expense for the years ended March 31, 2000, 1999, and 1998,
consists of:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ----------- -----------
Current:
<S> <C> <C> <C>
Federal.......................................................$ 7,427,000 4,538,000 4,845,000
State......................................................... 618,000 287,000 209,000
---------- ----------- -----------
Total..................................................... 8,045,000 4,825,000 5,054,000
--------- --------- -----------
Deferred:
Federal....................................................... (399,000) (1,179,000) (1,073,000)
State......................................................... (86,000) (78,000) (72,000)
---------- ----------- -----------
Total..................................................... (485,000) (1,257,000) (1,145,000)
---------- ----------- -----------
$ 7,560,000 3,568,000 3,909,000
========== =========== ===========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The income tax expense for the years ended March 31, 2000, 1999, and
1998 differs from the amount computed by applying the U.S. federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" income tax expense............................ $ 7,605,000 3,811,000 4,202,000
Increase resulting from:
State income tax, net of Federal benefit..................... 346,000 136,000 89,000
Amortization of goodwill..................................... 58,000 58,000 58,000
Insurance income exclusion................................... (165,000) (162,000) (278,000)
Other, net................................................... (284,000) (275,000) (162,000)
---------- ----------- -----------
Total income tax expense.......................................... $ 7,560,000 3,568,000 3,909,000
========== =========== ===========
</TABLE>
Temporary differences between the financial statement carrying amounts
and tax basis of assets and liabilities that give rise to significant
portions of the deferred tax asset (liability) at March 31, 2000 and
1999, relate to the following:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
Deferred tax assets:
<S> <C> <C>
Allowance for doubtful accounts.............................. $ 3,680,000 3,200,000
Unearned insurance commissions............................... 1,453,000 1,176,000
Accounts payable and accrued expenses primarily
related to employee benefits............................. 350,000 370,000
Intangible assets............................................ 27,000 246,000
Tax over book accrued interest receivable.................... 743,000 536,000
Other........................................................ 266,000 211,000
------------- ------------
Gross deferred tax assets......................................... 6,519,000 5,739,000
Less valuation allowance.......................................... (266,000) (211,000)
------------- ------------
Net deferred tax assets........................................... 6,253,000 5,528,000
------------- ------------
Deferred tax liabilities:
Discount on purchased loans.................................. (121,000) (151,000)
Deferred net loan origination fees........................... (442,000) (408,000)
Other........................................................ (480,000) (244,000)
------------- ------------
Gross deferred tax liabilities.................................... (1,043,000) (803,000)
------------- ------------
Net deferred tax assets........................................... $ 5,210,000 4,725,000
============= ============
</TABLE>
A valuation allowance is established for any portion of the gross
deferred tax asset that is not more likely than not to be realized. The
realization of net deferred tax assets is based on utilization of loss
carrybacks to prior taxable periods, anticipation of future taxable
income and the utilization of tax planning strategies. Management has
determined that it is more likely than not that the net deferred tax
asset can be realized based upon these criteria.
The Internal Revenue Service has examined the Company's federal income
tax returns for the fiscal years 1994 through 1996. Tax returns for
fiscal 1997 and subsequent years are subject to examination by the
taxing authorities.
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(9) Earnings Per Share
------------------
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS calculations.
<TABLE>
<CAPTION>
For the year ended March 31, 2000
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
<S> <C> <C> <C>
Income available to common shareholders.................. $ 14,168,519 19,003,380 $ .75
======
Effect of Dilutive Securities
Options.................................................. $ - 151,662
------------ -----------
Diluted EPS
Income available to common shareholders
plus assumed conversions............................... $ 14,168,519 19,155,042 $ .74
============ =========== ======
</TABLE>
<TABLE>
<CAPTION>
For the year ended March 31, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
<S> <C> <C> <C>
Income available to common shareholders.................. $ 7,319,597 19,010,789 $ .39
======
Effect of Dilutive Securities
Options.................................................. $ - 202,024
------------ -----------
Diluted EPS
Income available to common shareholders
plus assumed conversions............................... $ 7,319,597 19,212,813 $ .38
============ ========== ======
</TABLE>
<TABLE>
<CAPTION>
For the year ended March 31, 1998
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
<S> <C> <C> <C>
Income available to common shareholders.................. $ 8,098,441 18,959,348 $ .43
======
Effect of Dilutive Securities
Options.................................................. $ - 213,108
------------ -----------
Diluted EPS
Income available to common shareholders
plus assumed conversions............................... $ 8,098,441 19,172,456 $ .42
============ =========== ======
</TABLE>
Options to purchase 2,986,140, 1,979,878, and 1,938,669 shares of
common stock at various prices were outstanding during the years ended
March 31, 2000, 1999 and 1998, respectively, but were not included in
the computation of diluted EPS because the option exercise price was
greater than the average market price of the common shares. The
options, which expire on various dates, were still outstanding as of
March 31, 2000.
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(10) Benefit Plans
-------------
Retirement Plan
The Company provides a defined contribution employee benefit plan
(401(k) plan) covering full-time employees, whereby employees can
invest up to 15% of their gross pay. The Company makes a matching
contribution equal to 50% of the employees' contributions for the first
6% of gross pay. The Company's expense under this plan was $364,667,
$306,697, and $284,925, for the years ended March 31, 2000, 1999, and
1998, respectively.
Stock Option Plans
The Company has a 1992 Stock Option Plan and a 1994 Stock Option Plan
for the benefit of certain directors, officers, and key employees.
Under these plans, 3,750,000 shares of authorized common stock have
been reserved for issuance pursuant to grants approved by the Stock
Option Committee. The options have a maximum duration of 10 years, may
be subject to certain vesting requirements, and are priced at the
market value of the Company's common stock on the date of grant of the
option.
The Company applies APB Opinion 25 in accounting for the stock option
plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option
plans. Had compensation cost been recognized for the stock option plans
applying the fair-value-based method as prescribed by SFAS 123, the
Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts) 2000 1999 1998
----------- ----------- --------
Net income
<S> <C> <C> <C>
As reported................................................. $ 14,169 7,320 8,098
Pro forma................................................... $ 13,423 6,666 7,553
Basic earnings per share
As reported................................................. $ .75 .39 .43
====== ====== ======
Pro forma................................................... $ .71 .35 .40
====== ====== ======
Diluted earnings per share
As reported................................................. $ .74 .38 .42
====== ====== ======
Pro forma................................................... $ .70 .35 .39
====== ====== ======
</TABLE>
The effects of applying SFAS 123 may not be representative of the
effects on reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 2000, 1999, and 1998, respectively:
dividend yield of zero; expected volatility of 40%, 51% and 43%;
risk-free interest rate of 6.76%, 5.00%, 5.82%; and expected lives of
10 years for all plans in all three years. The fair values of options
granted in 2000, 1999, and 1998 were $3.36, $3.92, and $3.88,
respectively.
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
At March 31, 2000, the Company had the following options outstanding:
<TABLE>
<CAPTION>
Shares Shares Shares Price
Grant Date Granted Exercisable Exercised Per Share Expiration Date
---------- ------- ----------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
April 22, 1992 150,000 150,000 - $ 2.98 April 22, 2002
April 30, 1992 24,000 24,000 6,000 $ 3.04 April 30, 2002
October 20, 1992 358,500 358,500 233,500 $ 2.92 October 20, 2002
January 20, 1993 30,000 30,000 - $ 5.04 January 20, 2003
April 7, 1993 90,000 90,000 4,000 $ 6.33 April 7, 2003
April 30, 1993 18,000 18,000 - $ 5.54 April 30, 2003
October 19, 1993 336,000 336,000 13,500 $ 6.88 October 19, 2003
April 30, 1994 24,000 24,000 - $ 5.75 April 30, 2004
October 13, 1994 499,500 499,500 6,000 $ 7.48 October 13, 2004
April 1, 1995 211,692 211,692 - $ 8.63 April 1, 2005
April 30, 1995 24,000 24,000 - $ 9.50 April 30, 2005
June 26, 1995 75,000 45,000 - $11.33 June 26, 2005
October 31, 1995 109,500 89,200 - $13.00 October 31, 2005
January 23, 1996 15,000 12,000 - $10.25 January 23, 2006
April 1, 1996 229,177 229,177 - $10.75 April 1, 2006
April 30, 1996 24,000 24,000 - $10.06 April 30, 2006
July 18, 1996 14,600 14,600 - $6.75 July 18, 2006
October 25, 1996 173,500 103,500 - $6.69 October 25, 2006
January 27, 1997 36,000 17,400 - $5.94 January 27, 2007
March 31, 1997 26,800 17,867 - $5.41 March 31, 2007
April 1, 1997 78,662 78,662 - $5.41 April 1, 2007
April 29, 1997 24,000 24,000 - $5.18 April 29, 2007
April 30, 1997 24,000 24,000 - $5.16 April 30, 2007
October 28, 1997 190,000 80,200 - $5.19 October 28, 2007
April 1, 1998 73,309 56,635 - $6.69 April 1, 2008
April 1, 1998 36,300 12,072 - $6.69 April 1, 2008
April 30, 1998 24,000 24,000 - $6.50 April 30, 2008
November 23, 1998 231,500 51,500 - $5.25 November 23, 2008
April 1, 1999 192,100 83,334 - $5.38 April 1, 2009
April 30, 1999 24,000 24,000 - $5.47 April 30, 2009
May 11, 1999 15,000 - - $5.47 May 11, 2009
August 16, 1999 50,000 - - $5.78 August 16, 2009
October 20, 1999 140,000 - - $5.44 October 20, 2009
--------- --------- ---------
Total 3,572,140 2,776,839 263,000
========= ========= =========
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Subsequent to March 31, 2000, the Company granted options for
additional shares under the plans: April 1, 2000, 49,300 shares to
certain branch managers; and April 30, 2000, 24,000 shares to
non-management directors. After giving affect to the above grants,
there remain 104,560 shares of common stock available for future
grants. No expense has been recorded relative to stock options granted
to date.
(11) Acquisitions
------------
During fiscal 2000, the Company purchased the net assets of 24 consumer
loan offices for a total consideration of $12,376,112. Total net loans
receivable acquired amounted to $9,571,314, and the Company paid
$2,753,200 for non-compete agreements with predecessor owners and for
other intangible assets. Twelve of the 24 offices acquired were merged
into existing offices.
During fiscal 1999, the Company purchased the net assets of 21 consumer
loan offices for a total consideration of $5,909,134. Total net loans
receivable acquired amounted to $4,271,696, and the Company paid
$1,527,123 for non-compete agreements with predecessor owners and for
other intangible assets. Eighteen of the 21 offices acquired were
merged into existing offices.
During fiscal 1998, the Company purchased the net assets of 27 consumer
loan offices for a total consideration of $9,338,522. Total net loans
receivable acquired amounted to $7,450,022, and the Company paid
$1,925,437 for non-compete agreements with predecessor owners and for
other intangible assets. Eighteen of the 27 offices acquired were
merged into existing offices.
The pro forma impact of these purchases as though they had been
acquired at the beginning of the periods presented would not have a
material effect on the results of operations as reported.
(12) Quarterly Information (Unaudited)
---------------------------------
The following sets forth selected quarterly operating data:
<TABLE>
<CAPTION>
2000 1999
--------------------------------- ---------------------------------
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
(Dollars in thousands, except earnings per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues............................. $ 24,327 25,513 26,930 28,506 20,734 21,682 23,836 25,510
Provision for loan losses.................. 3,039 4,573 5,540 2,545 2,360 3,112 4,262 1,973
General and administrative expenses........ 15,301 14,723 15,886 15,925 13,925 19,696 15,012 15,000
Interest expense........................... 1,356 1,463 1,582 1,614 1,216 1,411 1,456 1,451
Income tax expense ........................ 1,575 1,625 1,336 3,024 1,100 (867) 1,052 2,283
----- ------- ------- ------ ------- -------- ------- ------
Net income (loss)..................... $ 3,056 3,129 2,586 5,398 2,133 (1,670) 2,054 4,803
===== ======= ======= ====== ======= ======= ======= ======
Earnings (loss) per share:
Basic................................. $ .16 .16 .14 .29 .11 (.09) .11 .26
======= ======= ======= ====== ======= ======= ======= ======
Diluted............................... $ .16 .16 .14 .28 .11 (.09) .11 .25
======= ======= ======= ====== ======= ======= ======= ======
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(13) Litigation
----------
From April 1995 through July 1999, the Company and several of its
subsidiaries were parties to litigation challenging the Company's
non-filing insurance practices. Non-filing insurance is an insurance
product that lenders like the Company can purchase in lieu of filing a
UCC financing statement covering the collateral of their borrowers. The
litigation against the Company was consolidated with other litigation
against other finance companies, jewelry and furniture retailers, and
insurance companies in a purported nationwide class action in the U.S.
District Court in Alabama under the caption In re: Consolidated
"Non-filing Insurance" Fee Litigation (Multidistrict Litigation Docket
No. 1130), U.S. District Court, Middle District of Alabama, Northern
Division).
On November 11, 1998, the Company and its subsidiaries named in the
action entered into a settlement agreement pursuant to which the
Company agreed to settle all claims alleged in the litigation involving
it and its subsidiaries for an aggregate cash payment of $5 million. In
addition, the terms of the settlement curtailed certain non-filing
practices by the Company and its subsidiaries and allowed the court to
approve criteria defining those circumstances in which the Company's
subsidiaries could make non-filing insurance claims going forward. As a
result of the settlement, non-filing insurance fees charged to
borrowers were reduced by 25%. The settlement agreement, which includes
the settlement by several other defendants in the litigation, including
the Company's insurer, was approved by the Court.
The Company recorded an accrual for settlement costs, including the
expected expenses to comply with the terms of the settlement, of $5.4
million in the fiscal year ended March 31, 1999. Of this total accrual,
$5.0 million was paid to an escrow account and has been distributed to
class participants and $244 thousand in costs were incurred in
completing the settlement. The remaining $156 thousand of the accrual
was reversed in fiscal 2000. The settlement limited and reduced the
coverage for the types of losses with respect to which its subsidiaries
submit claims. The Company does not believe that those limitations and
reductions will have a material adverse effect on the Company's results
of operations.
The Company was named as a defendant in an action, Turner v. World
Acceptance Corp., filed in the district court for the Fourteenth
Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20,
1997. That action (the Tulsa Case) named the Company and numerous other
consumer finance companies as defendants, and sought certification as a
statewide class action. The Tulsa Case alleges that the Company and
other consumer finance defendants collected excess finance charges in
connection with refinancing certain consumer finance loans in Oklahoma
and seeks money damages and an injunction against further collection of
such charges. The Tulsa Case also challenged the constitutionality of
the provisions of the Oklahoma Consumer Credit Code ("OCCC") under
which the Company operates. The Company filed an answer in the action
denying the allegations. On March 16, 1999, the District Court granted
summary judgment in favor of the Company and the other consumer finance
companies and dismissed the Tulsa Case. The plaintiffs in the Tulsa
Case appealed that order, and their appeal remains pending before the
Oklahoma Court of Appeals.
The Tulsa Case is based on an opinion of the Oklahoma Attorney General
issued on February 20, 1997, interpreting a provision of the OCCC with
respect to the permitted amount of certain loan refinance charges in a
manner contrary to regulatory practice that had been in existence in
Oklahoma since 1969. On the basis of that opinion the Administrator of
the Oklahoma Department of Consumer Credit (the "Department") notified
the Company and the other consumer finance companies that the
Department would begin enforcing the provisions of the OCCC, as
interpreted by the Attorney General's opinion on March 3, 1997. In
response to the Attorney General's opinion and the Department's threat,
the Company
<PAGE>
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
and numerous other consumer finance companies brought suit (the
"Administrator's Case") to enjoin enforcement by the Department of the
OCCC as interpreted by the Attorney General. Shortly thereafter, the
Oklahoma Legislature enacted amendments to the relevant provision of
the OCCC, which became effective on August 29, 1997, and which negated
the effect of the Attorney General's interpretation.
Although the Company and the other consumer finance companies were
successful at the trial court level in the Adminstrator's Case, in May
1999, the Oklahoma Supreme Court upheld the Attorney General's
interpretation. The Oklahoma Supreme Court's decision expressly limited
the application of the Attorney General's interpretation of the OCCC to
the period between March 3, 1997, and August 29, 1997, and it expressly
refrained from reaching the issue of whether refunds of charges
assessed during that period were required.
The Attorney General has recently directed the Department to proceed
with administratively ordering refunds of those charges. The Company
and several of the other consumer finance companies contend that for
numerous reasons, the Department lacks both the authority and the legal
basis to order refunds. The Company and the other consumer finance
companies are attempting to open discussions with the Department and
the Attorney General with the goal of resolving both the issues
concerning an attempted administrative order of refunds and the issues
that remain pending in the Tulsa Case. It is far too early to predict
whether those discussions, if they can be initiated, will be
successful. Nonetheless, because of the 1997 amendments to the OCCC,
the Company expects that even if both the Tulsa Case and the
Department's attempts at administratively ordering refunds are decided
adversely to the Company, those results would not materially affect the
Company's refinancing practices in Oklahoma going forward. Such adverse
decisions could involve a material monetary award; however, in the
opinion of management the likelihood of such a material monetary award
is not currently deemed to be probable. The Company intends to continue
to defend vigorously against both the Tulsa Case and the Department's
threat to administratively order refunds, while at the same time,
exploring every possibility of reaching a satisfactory non-judicial
resolution of all of the issues.
At March 31, 2000, the Company and certain of its subsidiaries have
been named as defendants in various other legal actions arising from
their normal business activities in which damages in various amounts
are claimed. Although the amount of any ultimate liability with respect
to such other matters cannot be determined, in the opinion of
management, and based upon the advice of counsel, any such liability
will not have a material adverse effect on the Company's consolidated
financial statements taken as a whole.
(14) Commitments
-----------
The Company has entered into employment agreements with certain key
executive employees. The employment agreements have terms of three
years and call for aggregate minimum annual base salaries of $625,500,
adjusted annually as determined by the Company's Compensation
Committee. The agreements also provide for annual incentive bonuses,
which are based on the achievement of certain predetermined operational
goals.
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
The Board of Directors
World Acceptance Corporation
Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of World
Acceptance Corporation and subsidiaries as of March 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 2000. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of World
Acceptance Corporation and subsidiaries as of March 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG
Greenville, South Carolina
April 20, 2000
<PAGE>
CORPORATE INFORMATION
--------------------------------------------------------------------------------
Common Stock
World Acceptance Corporation's common stock trades on The Nasdaq Stock
Market under the symbol: WRLD. As of June 19, 2000, there were approximately 152
shareholders of record and approximately 2,000 persons or entities who hold
their stock in nominee or "street" names through various brokerage firms. On
this date there were 18,627,573 shares of common stock outstanding.
The table below reflects the stock prices published by Nasdaq by quarter
for the last two fiscal years. The last reported sale price on June 19, 2000,
was $5.00.
Market Price of Common Stock
Fiscal 1999
----------------------------------------
Quarter High Low
------- ------- --------
First $ 7.94 $ 5.63
Second 6.94 4.75
Third 6.50 4.56
Fourth 6.75 5.19
Fiscal 2000
----------------------------------------
Quarter High Low
------- ------- --------
First $ 5.75 $ 5.00
Second 6.63 5.00
Third 5.81 4.13
Fourth 6.13 4.38
Executive Offices
World Acceptance Corporation
Post Office Box 6249 (29606)
108 Frederick Street (29607)
Greenville, South Carolina
(864) 298-9800
Transfer Agent
First Union National Bank
Shareholder Services Group
1525 West W. T. Harris Boulevard
Charlotte, North Carolina 28288
(800) 829-8432
Legal Counsel
Robinson, Bradshaw, & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Independent Auditors
KPMG LLP
55 Beattie Place, Suite 900
Greenville, South Carolina 29601
Annual Report
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, may be obtained without charge by writing to the
Corporate Secretary at the executive offices of the Company.
For Further Information
A. Alexander McLean III
Executive Vice President and Chief Financial Officer
World Acceptance Corporation
(864) 298-9800
